The shocking Malaysian election result could hit Chinese investments

  • A stunning win by the opposition bloc in Malaysia's general election on Wednesday could have implications for the Southeast Asian nation's ties with China, a major investor.
  • Mahathir Mohamad, who led his opposition alliance to victory, said the country could renegotiate several agreements that had been struck with China.
  • Mahathir criticized the previous administration for selling out to China.

A stunning win by the opposition bloc in Malaysia's general election on Wednesday could have implications for the Southeast Asian nation's ties with China, a major invsetor.

Mahathir Mohamad, a former Malaysian prime minister who led his opposition alliance to victory over the ruling coalition, said Thursday the country could renegotiate several agreements that had been struck with China.

Mahathir said he had no problem with China's Belt and Road Initiative (BRI), a wide-reaching infrastructure investment program, but added that "we would not like to see too many warships in this area, because [a] warship attracts other warships," Reuters said on Thursday.

Those comments come on the back of warmer ties between Malaysia and China in recent years under the administration of Prime Minister Najib Razak.

Malaysia was the fourth-largest recipient of China's overseas direct investment last year, a 2017 report from the Economist Intelligence Unit said. That compared to the country's position of 20th place in the 2015 ranking.

That came as China seeks to expand its influence overseas, spurring concerns internationally about the reach of the Chinese Communist Party.

Mahathir took issue with vast mainland Chinese investments under Najib's administration during his campaign, arguing that his country has been selling out to Beijing.

In Malaysia, a number of major port and rail projects have been scheduled for development. A Citi report estimated they would receive as much as 400 billion ringgit ($101 billion) in Chinese investments over the next two decades.

The Alibaba-led Digital Free Trade Zone, also regarded as part of the BRI, was established in Kuala Lumpur earlier this year in a bid to improve trade between China and the Southeast Asian region.

A project that has been singled out by Mahathir in the lead up to the general election for being wasteful is the East Coast Rail Link in peninsular Malaysia. A 688-kilometer (430-mile) rail project costing $13 billion, it is being built by China Communications Construction and is also considered part of the Belt and Road Initiative.

The necessity of that project would be reviewed and its development halted if it is found inessential, Mahathir was quoted as saying by the state-run Bernama news agency in April.

"It wouldn't be particularly surprising if this is the first project they review," Brian Tan, Southeast Asia economist at Nomura, told CNBC.

While there will be greater uncertainty over Mahathir's coalition's targeting of Chinese infrastructure projects, Tan said the alliance had been careful to emphasize that it was reviewing, rather than immediately calling off, those projects.

Fidelity International said in a note that the new government was likely to go back to the drawing board over large-scale infrastructure projects: "Mahathir in the past has said he will scrap the large 'unnecessary' mega projects such as the [high speed rail] as he disagreed with the large debt taken to fund these projects."

Mahathir has also taken issue with a massive private residential project from a Chinese company in the state of Johor, just north of Singapore. Most Malaysian's, he has said, cannot afford the apartments there.

Responding to the election results in Malaysia, Chinese international real estate website Juwai.com was upbeat about opportunities under the incoming government, but acknowledged that some Chinese buyers may hold back if there are uncertainties.

However, current policies regarding visa, home-buying and education remain "very appealing," said Juwai.com CEO, Carrie Law said an email.

Law said Chinese buyer inquiries on Malaysian properties in the first three months of 2018 were up 103 percent from the same time a year ago. Inquiries in April rose 120 percent from a year ago, she added.

"If there is no change, we expect Chinese investment in Malaysian property to continue to grow in the months and years to come. Chinese acquisitions could at least double by 2025," she added.